The CARES Act and Your Retirement Savings

Thanks to the recent Coronavirus Aid, Relief, and Economic Security (CARES) Act signed into legislation, you’re able to access up to $100,000 of your retirement savings without having the usual 10% penalty fee for early withdrawal. This is as long as you put the money back into your retirement account within three years.

The CARES Act also doubles how much 401(k) participants can take in loans from an account for the next six months up to $100,000 or 100% of the account balance. However, if you have an IRA, you’re not allowed to take a loan from those accounts.

Should You Dip into Your Retirement Savings?

So, the CARES Act makes it possible to dip into your retirement savings right now, but does that mean you should? Many Americans are struggling and unable to collect unemployment – or are collecting unemployment but still can’t make ends meet. For those unable to pay rent/mortgages, buy food or pay for other basic necessities the choice is obvious. Take advantage of the break from the CARES Act and take out some of your retirement savings.

But if you’re getting by, you may be better off leaving your retirement savings right where it is. Keep in mind that for every dollar you withdraw from your retirement savings today reduces your retirement savings by $10 for every decade between now and the date you retire. And believe me, that adds up fast! Here are a few other reasons to leave your retirement savings alone if you can:

  • You Want to Be Able to Retire
    Every penny put towards your retirement counts. According to Bloomberg News, 48% of those age 55 and older have no retirement savings. If you don’t want to be in that kind of statistic, you should leave your 401(k) or IRA alone right now. No one wants to spend their golden years working to get by, that’s the time we should all be relaxing and enjoying life.
  • Now is the Worst Time to Sell
    With the stock market taking drastic downward dives on a daily basis, now is not the time to be selling off any investments. Historically, now is the best time to be buying not selling. If you withdraw money now and replace it in two years, you’ll be missing out on the great returns you could have earned when the market rebounds during that time period.
  • You Might Not Pay it Back
    Despite your best intentions, chances are you probably won’t pay back your retirement funds. That means you’ll get hit with a sizable tax bill in three years. So, you’ll have less in your retirement accounts and you’ll end up owing the government money in taxes and penalties. Doesn’t really seem worth it, does it?

Now What?

Now is the time to decide how much you really need to tap into your retirement savings. No emergency fund? No income? Then yes, it might be a good idea to withdraw just enough till you’ll be getting an income again. Just be sure you’ll be able to replace any money you take out within the next three years.

If your finances are stretched thinly, but you can limp along till you’re working again, then you might want to think twice before putting your ability to retire at risk. Cut back your expenses where you can and get smart about dealing with the debt you have before taking that leap.

Have questions about your WWFCU IRA? Speak to a WWFCU Member Service Representative at (734) 721-5700.

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